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8/14/2019 Final Presentation Banking Sector Final
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THE BANKINGSECTOR
| Rahul | Milind | Jaipratap | Pulkit | Shweta |
| Manoj | Ramprakash | Pranay | Atul |Group-4
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Contents Dimensions of sector
Geographical reach
Growth and market share
Deployment of funds
Financial Indicators
Investments Required
Regulation and legislation Brand value of Indian banks
Bank Valuations
Non bank valuations
Outsourcing pie
Mergers and acquisitions Insurance
Regulation
SWOT
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Dimensions of the sector
174 commercial banks in India (of which 91
RRBs)Operating with 77773 branches (March 08)
Nearly 62% of branches are in rural/semi-urban areas
Banks are supporting growth in the economy by
financing productive sectors
The banking and financial sector currently employs 8.49lakh individuals and this figure is expected to grow to
1.28 lakhs approx. in next five years
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Number of bank branches(including offices) in India
Rural 30977
Semi urban 17656
Urban 15245
Metropolitan 13895
Number of branches increased in last 8 years i.e from
FY2000 to FY2008 are 9836
By March08 there is 1 branch on every 15000 individuals
Geographical reach
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Current Snapshot Loans and Advances from scheduled commercial banks
Rs.27,57,210 crores as on 05/06/2009 Deposits Rs.39,71,651 crores as on 5/06/2009
Cash-Deposit ratio 6.04
Investment deposit ratio 32.10 Credit deposit ratio 69.42
Deposit growth Rs.1,37,541 crores sinceMarch09
Credit growth Rs.(18,339) crores sinceMarch09Profit after tax Rs.40,971 crore in 2007-08 with a growth of
39.17% as against 24.40 % in 2006-07
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Growth in Banking sector(percent)
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Shar i Gr Bank Cr it- Bank Gr p-wi
(Mar08)
Public Sectorbanks68%
Private Sector
banks26%
Foreign Banks6%
P rc ntag
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Share in Aggregate De osits - ank rou -
ise
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Selected Banking Aggregates
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Industry-wise deployment of Gross Bank
Credit(Mar08)
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Movements in RAR and NPAs ofSCBs
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Selected Financial indicators(Percent)
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Ca ital adequacy ratio requirements
For Scheduled Commercial Banks CAR= 9%For New Private Sector Banks CAR =
10%
For Banks undertaking Insurance Business CAR =
10%
For Ne Banks: Initial minimum paid-up capital for a new bank is
Rs.200 crore. The initial capital will be raised to Rs.300 crore within
three years of commencement of business
Average Capital to risk weighted asset ratio for the Indian banking
system as at the end of march08 was 12.6%
Capital Investments required
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In the next five years Banking sector would require additional capital
of Rs 5,68,744 crore is based on the assumption that banks wouldmaintain capital-to-risk-weighted assets ratio (CRAR) at 12 per
cent(Reserve Bank of Indias Report on Currency and Finance)
Public sector banks would require Rs 3,69,115 crore (64.9 per centof total requirements),
Old private sector banks Rs 23,319 crore (4.1 per cent),
New private sector banks Rs 1,13,180 crore (19.9 per cent)
And foreign banks Rs 63,131 crore (11.1 per cent).
Capital Investments
required(contd..)
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Banking Services De osit Products
Loan Products
Remittance facilities
Other facilities: Bank Guarantees, letter of credit etc.
Bill Discounting and Merchant Banking
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SBI ICICI HDFC Axis
Corporation
bank BoB BoI Canara
Sales 63,788.43 31,092.55 16,332.27 10,835.48 6,067.35 15,091.58 16,347.36 17,119.06
EBDIT 15,499.20 5,738.55 3,928.87 3,081.73 1,436.52 3,730.20 4,429.42 3,963.77
PAT 9,124.18 3,740.62 2,240.75 1,823.56 802.19 2,227.25 3,007.35 2,072.42
CAR 12.97 15.53 15.1 13.69 13.66 12.88 13.01 14.1
NIM 2.47% 2.14% 4.69% 2.86% 2.20% 0.03 2.74% 2.78%
EPS 143.71 33.62 52.68 50.79 55.93 61.14 57.26 50.55
BV/ share 912.73 445.17 344.44 284.53 341.36 352.37 224.39 208.33
P/E RATIO 12.5 23.3 29.3 16.7 5.5 7.3 6.1 5.2
CMP 1748 754.00 1496 818 331 435 345 266
Brief financials of major Banks
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Ratios SBI ICICI HDFC AXISCORPORATIO
N BANK
BANK OF
BARODA
BANK OF
INDIA
CANARA
BANK
Credit-
De osit(%)75 95.9 66.6 68.9 67.77 72.78 75.47 69.4
Investment /
De osit (%) 36.4 46.4 44.4 39 32.66 27.96 27.79 32.06
Other Income
/ Total Income
(%)
16.6 20.8 17.5 21.6 15.44 15.58 15.73 13.98
O erating
Ex enses /
Total Income
(%)
20.5 19.3 28.9 20.8 13.97 20.14 15.95 17.49
RONW (%) 17.1 7.83 16.9 19.1 19.57 18.65 29.18 19.08
Important ratios
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Market share of banks in India
SBI &Assosciates
26%ICICIBank7.5%
CanaraBank5%
PNB
6%
Bank ofIndia
5%Bank ofBaroda5%
HDFC Bank3.5%Axis Bank2%
Others
40%
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Brand Value of Indian Banks in Global
Market
Rank Bank Brand Value
(US$ in mn)
Market Cap
(US$ in mn)
Brand
Value/Market Cap
70 State Bank of India 1448 9834 15%
110 ICICI Bank 939 7893 12%
153 HDFC Bank 611 7785 8%
192Punjab National
Bank384 2853 13%
228 Bank of India 273 2567 11%251 Canara Bank 243 1363 18%
260 Bank of Baroda 229 1867 12%
269 Axis Bank 205 2935 7%
280Kotak Mahindra
Bank188 2388 8%
351 Union Bank of India 137 1466 9%
Source: BrandFinance Global Banking 500 Report, 2009
The methodology em loyed by Brand Finance in this lobal Banking 5 listinguses a discounted cash flo (DCF) technique to discount estimated futureroyalties, at an a ro riate discount rate, to arrive at a net resent value (NPV) of
the trademark and associated intellectual ro erty: the brand value.
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PSU Banks Rank among Indian Companies
State Bank of India13
Bank of India 92
Central Bank of India 134
Bank of India 135
Punjab National Bank 136
Private Banks Rank
ICICI Bank 98
HDFC Bank 124
Axis Bank 190
Kotak Bank 226
Source: Brand equity survey, 2009
Indian Banking Scenario
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Foreign Banks Rank
CitiBank 219
Standard Chartered Bank 255
HSBC 264
American Express Bank 279
ABNAmro Bank 286
Although these foreign banks rank very high in worldtop 500 Brand Value, in India it is still very lowlyranked.
Brand Equity of Foreign Banks
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Regional Comparison of Banks
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Only 1 Indian Bank (SBI) in worlds top 100 banking
brands while there are 3 Chinese banks in top 25 itself(Including rank 5).
Combined Brand value of Indian Banks have declinedwhile that of other BRIC countries including Russia
increased over last year 2008-2009. Even in India, just SBI (13) is within top 50 companies
w.r.t. Brand equity.
Hence need to enhance the Brand Value of Indian banksboth within India and outside to get more premiums ontheir services.
Brand Equity - Observation
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Valuation of Banks Key comparative Factors
Growth RoE
Steady Earnings
Other Factors New Product Introduction
Consolidation
Changes in Balance Sheet due to new regulation Changes in Legal environment
Ownership limits
Regulatory Impositions
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Higher Growth and hence Higher
Valuation
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Annualized Premium ro th- Insurance
Positive Impact due to Insurance Amendment Bill tabled in Parliamentwhich allows Insurance companies to list and hence unlock their value .
Key beneficiary would include ICICI Bank, HDFC Bank, Kotak, SBI
Valuation of 5-6% of AUM is attributed to the Asset Managementholdings of banks
Non-Bank Business Valuation
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Parameters in CMP
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Front Office
Sales Personnel
Corporate finance
Middle Office
Risk, research and IT services
Back OfficeAdministrative and support services
Breakup of a Financial Services
Company
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Outsourcing Scope Support functions
Accounts management
Facilities Management
Research managementAccounts Payable
Accounts Receivable
Treasury
General Ledger
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With 27 public, 31 private and 29 foreign
banks , a consolidation exercise is bound tohappen in Indian Banking sector
Shares as a risk mitigation and sharing
exercise By 2010, Indian banking system needs a
capital infusion of around $10 million.
But consolidation enthusiasm doesnt existsright now in Indian market
Mergers and Acquisition in Indian Banking
Sector
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SBI recently merged State Bank of Indore within
itself Last year, it completed an acquisition ofan Indonesian bank
Bank of India expands its presence in Africa.
Opens up branches in Kenya and is looking for anacquisition.
Reports of SBI looking to buy a mid sized bank
abroad, with a deal size between $1.5-2 billion Major presence abroad in 27 countries
Reports of IDBI scouting for a bank has alsoemerged
Mergers and Acquisition
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INDIAN BANKSA
BROAD
Bank of India is looking at buying out a local
rival in Kenya State Bank of India acquired 76 % shares of
IndoMonex (2006) , Mauritius bank
ICICI Bank (NYSE:IBN) has acquired theentire paid-up capital of Investitsionno-Kreditny Bank (IKB), a Russian bank
IDBI Bank has acquired a portfolio of over2,500 merchant establishments from BNPParibas, the French bank
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INSURANCE From Bancassurance to insurance
Bank-distribution model shaking Union Bank is a partner in Star Union Dai-ichi
Life Insurance
Bank of Baroda has tied up with Andhra Bankand Legal & General for an insurance venture
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Indian banking sectorset to open up by
2009
March 2005 -2009 foreign banks that were so
far restricted to branch operations could alsoset up wholly owned subsidiaries
Foreign bank subsidiaries with a minimum
capital requirement ofRs 3 bn would beallowed to carry out branch expansion
Foreign banks cannot grow unrestrained; can
buy only weak local banks the regulatoridentifies (with an investment of up to 74 percent)
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Developmental and Regulatory
framework
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Financial Stability Committee on Financial Sector Assessment
(CFSA)
To constitute a task force with regard to G-20
working groups
To set up a Financial Stability unit in Reserve
Bank
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Interest Rate Policy Benchmark Price Lending Rate (BPLR) Sytem
Review
Payment of Interest on Savings Bank A/c on a
daily product basis
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Special Refinance Facility: Extension
Special Term Repo Facility: Extension
Export Credit Refinance: Extension
Money Market Mutual Funds
Interest Rate Futures
Financial Markets:Money Market
Fi i l M k t
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Financial Markets: Foreign ExchangeMarket
Extension of Relaxation of all in cost ceilings
Liberalization of the policy on buyback of
FCCBs
Loans against Non-Resident Deposits
Currency Futures
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Credit Delivery Mechanism Credit flow to the MSE Sector
Rural Cooperative Banks Licensing of Cooperatives
Revival of Rural Co-operative Credit Structure
Regional Rural Banks Capital to Risk-weighted Assets Ratio
Assistance to RRBs for adoption of ICT solutions
Amalgamation
Recapitalization
Technology up gradation
Delivery of Credit to agriculture and other segments Kisan Credit Card Scheme and Rural Infrastructure Development
Fund
Interest Subvention relief to farmers and Micro Finance
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Prudential Measures
Further Relaxation in the Branch Authorization
Policy
Mitigating Pro-cyclicality: Use of Floating
Precisions
Credit Rating Agencies
Liquidity Risk
Relaxing Eligibility Criteria for Banking
Correspondents
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Institutional Developments
Final guidelines for Prepaid Payment
Institution in India Consolidation of Information Technology
System
Adequacy of the feedback arrangements formanaged IT Systems
Recent Developments Electronic Payment Systems
National Electronic Clearing Service
Rationalization of charges for payment systems
The Payment and Settlement Systems
Act, 2007
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SWOT - Strength
Strong growth - The banking index has grown at a compoundedannual rate of over 51 per cent since April 2001 as compared to a
27 per cent growth in the market index for the same period. Strong policy and regulations to help strengthen the sector.
Bank lending has been a significant driver of GDP growth andemployment.
Extensive reach - The vast networking & growing number of branches & ATMs. Indian banking system has reached even to theremote corners of the country.
The government's regular policy for Indian bank since 1969 has
paid rich dividends with the nationalization of 14 major privatebanks of India.
Quality assets and capital adequacy - Indian banks are consideredto have clean, strong and transparent balance sheets relative to
other banks in comparable economies in its region.
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SWOT - Weakness
Banks need to fundamentally strengthen institutional skill levelsespecially in sales and marketing, service operations, riskmanagement and the overall organizational performance ethic &strengthen human capital.
The cost of intermediation remains high and bank penetration islimited to only a few customer segments and geographies.
Structural weaknesses such as a fragmented industry structure,restrictions on capital availability and deployment, lack of institutional support infrastructure, restrictive labour laws, weakcorporate governance and ineffective regulations beyondScheduled Commercial Banks (SCBs)
Refusal to dilute stake in PSU banks - The government has refusedto dilute its stake in PSU banks below 51% thus choking the
headroom available to these banks for raining equity capital. Impediments in sectoral reforms - Opposition from Left and
resultant cautious approach from the North Block in terms of approving merger of PSU banks may hamper their growthprospects in the medium term.
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SWOT - Opportunities
Opportunities in credit cards, consumer finance and wealthmanagement on the retail side, and in fee-based income andinvestment banking on the wholesale banking side. These requirenew skills in sales & marketing, credit and operations.
Banks will no longer enjoy windfall treasury gains that the decade-long secular decline in interest rates provided. This will expose theweaker banks.
With increased interest in India, competition from foreign banks willonly intensify.
Given the demographic shifts resulting from changes in age profileand household income, consumers will increasingly demandenhanced institutional capabilities and service levels from banks.
New private banks could reach the next level of their growth in theIndian banking sector by continuing to innovate and developdifferentiated business models to profitably serve segments like therural/low income and affluent/HNI segments
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SWOT - Opportunities
With the growth in the Indian economy expected to be strongfor quite some time-especially in its services sector-the
demand for banking services, especially retail banking,mortgages and investment services are expected to bestrong.
Reserve Bank of India (RBI) has approved a proposal fromthe government to amend the Banking Regulation Act to
permit banks to trade in commodities and commodityderivatives.
Liberalisation of ECB norms: The government also liberalisedthe ECB norms to permit financial sector entities engaged ininfrastructure funding to raise ECBs. This enabled banks and
financial institutions, which were earlier not permitted to raisesuch funds, explore this route for raising cheaper funds in theoverseas markets.
Hybrid capital: In an attempt to relieve banks of their capitalcrunch, the RBI has allowed them to raise perpetual bondsand other hybrid capital securities to shore up their capital
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SWOT - Threats
Threat of stability of the system: failure of
some weak banks has often threatened thestability of the system.
Rise in inflation figures which would lead to
increase in interest rates. Increase in the number of foreign players
would pose a threat to the PSB as well as the
private players.
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Im roving rofitability:
Increasing competition, narrowing of spreads. The
challenge for banks is how to manage with thinningmargins while at the same time working to improveproductivity which remains low in relation to globalstandards.
With falling spreads, rising provision for NPAs and fallinginterest rates, greater attention will need to be paid toreducing transaction costs.
Reinforcing technology:
Strategic and integral part of banking Implement systems that enable them to provide products
and services in large volumes at a competitive cost withbetter risk management practices.
Risk management:
Credit Risk, Market Risk, Operational Risk, Country Risk
Challenges Ahead
C
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Shar ening Skills
Need for specialized Banking
Functions(Retail, Treasury, Risk, ForeignExchange, development banking and IT)
Greater customer Orientation
Strive and attract demanding customers, enhancing
quality, innovative products, and market variety of products
Cor orate Governance
Importance of institutional and individual shareholderswill increase. Need a common code representing all thefractions
International Standards
Internationally followed best practices, universal codes ofconduct is necessary. Full transparency in disclosures
Challenges Ahead
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THANK YOU
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